Electronic download service Kobo Inc said its technology is the fastest way for U.S. bookseller Borders Group Inc to catch up to rivals in the burgeoning e-books market.

Kobo, a start-up previously known as Shortcovers that was spun off from Canadian bookseller Indigo Books & Music Inc, announced a deal on Tuesday with Borders and Indigo to provide each chain with e-book sales services.

Borders, the No. 2 U.S. bookseller, has been faulted by analysts and investors for coming late to the e-books market and missing out on a potential holidays bonanza this year. Rival Barnes & Noble Inc launched its Nook reader ahead of the holidays and online retailer Amazon.com Inc's Kindle has established itself as the market leader.

They see this as a way to get into the market quickly, because time is of the essence, Kobo Chief Executive Michael Serbinis told Reuters in an interview on Wednesday.

The market is still in its nascent stages but it is moving fast, he said.

While Borders is not introducing its own device, the deal will give its customers access to Kobo's catalog of 2 million books for sale and another 1.8 million free books. Kobo, which was launched in February, will power the Borders.com website.

Making matters more pressing for Borders is its inability to shape the policies that U.S. book publishers are developing in response to the emergence of e-readers.

Borders absolutely has to get into this game now or forever be left out of it, said James McQuivey, a media analyst at Forrester Research.

Once there are (policies) formed it will be very hard for Borders to have any leverage, McQuivey said.

Under terms of the deal, Borders will own a 20 percent stake in Kobo, while Indigo will keep 58 percent of the Toronto-based company. All in all, investors pumped $16 million into Kobo, Serbinis said.

Kobo will launch the chains' respective e-book services at the end of June 2010 and will also offer newspapers and magazines for download, Serbinis said.

Borders shares were down 4 cents at $1.19 in afternoon trade.

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Currently, Borders sells only Sony Corp's e-readers in its stores and had been expected to announce a more comprehensive e-books strategy after the holidays.

In November, Borders Chief Executive Ron Marshall said the book retailer's e-book approach would be device agnostic, meaning users of the devices such as the Nook, Apple Inc's iPhone and Research in Motion Ltd's BlackBerry would be able to download books from Borders.

Books downloaded onto a Kindle are not compatible with other e-readers.

With a slew of new e-readers on the way, Borders and Indigo are better served by making books available to as many clients as possible, Serbinis said.

It's a very fast evolving space, and there are going to be so many different devices that people read on, he said.

We don't lock them (readers) into any one device. It gives Borders and Indigo the ability to bring in that next hot device.

(Editing by Steve Orlofsky)

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